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Court refuses to enforce an award because defendant was not a party to the arbitration agreement

In the recent Dallah Real Estate v Pakistan case, the High Court concluded that Pakistan was not a party to an arbitration agreement, even after an arbitral tribunal in Paris had ruled otherwise and rendered its award. This case is notable as a rare example of a refusal by the English Courts to enforce an award under the New York Convention.

In 1994, Dallah and the Government of Pakistan entered into a Memorandum of Understanding by which Dallah was to acquire land in Mecca and contract with a trust set up by the Government of Pakistan for the use of the land. Dallah and the trust, a separate legal entity, subsequently entered into the contracts for development of housing on Dallah's plot. These contracts referred disputes to ICC arbitration in Paris. The trust was established on the basis of a temporary ordinance, and the trust ceased to exist once that ordinance lapsed.

A dispute arose under the contracts between the trust and Dallah, which Dallah referred to arbitration in Paris against Pakistan. Pakistan resisted jurisdiction, insisting that it was not a party to the contracts, and refused to participate in the arbitration.

Dallah obtained an award in the arbitration and sought to enforce it in London. Pakistan resisted enforcement claiming that the arbitration agreement was invalid (one of the grounds for refusing enforcement under the New York Convention, as implemented by the English Arbitration Act).

The Court held that this provision should be construed to include the issue of whether the party against whom the award is invoked is bound by the arbitration clause.

To determine the question of whether Pakistan was party to the arbitration agreements, the Court and the tribunal applied different laws: whereas the tribunal had applied transnational law, the Court applied French law, being the law of the seat. Having considered all of the relevant factors pursuant to the applicable French law principles, Aikens J held that Pakistan was not a party to the arbitration agreement and thus refused enforcement of the award.

This judgment provides an interesting example of investors' difficulties when contracting with states or state owned entities. Parties should always seek local advice as regards the capacity of a state party to enter into commercial contracts and the applicable procedures. They should also ensure that the counterparty remains accountable for the duration of the contract. Furthermore, to reduce uncertainty as to the interpretation of an arbitration agreement, parties are advised to include where possible an express agreement on the law applicable to the arbitration agreement. (Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan [2008] EWHC 1901 (Comm))

Compare jurisdictions: Litigation: Enforcement of Foreign Judgments

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